The latest U.K. employment report published yesterday contains some positive news: Payroll employment has grown modestly at the end of the summer, while the employment rate is up and unemployment down on the quarter. The bad news is that vacancies continue to decline and have now fallen to just over 691,000, the lowest level in more than 12 years outside the pandemic. Earnings are still growing faster than inflation for now, which has contributed to the positive economic momentum in recent months.
Payroll employment positively surprises
Payroll employment is growing meaningfully for the first time in over a year. Job growth in September was close to 13,000, better than analysts expected. Meanwhile, the August number was revised up to about 1,000, a marked improvement from the previously reported minus 26,000. As a side note, this also shows you that the first data release of the payroll numbers is often imprecise and should therefore be taken with a grain of salt.
The big question that everybody is asking right now: Are the two consecutive months of positive job growth a sign that the labor market has stabilized and is turning a corner? Hopefully yes, but it might still be too early to tell. As the chart below shows, payroll employment also grew in July and August 2025, and again in December and January, before taking another turn for the worse.
While the recent improvement is obviously good news, payroll employment is still down by a cumulative total of approximately 170,000 since the summer of 2024. This shows the extent to which the U.K. labor market has weakened in recent years on the back of the massive surge in employment costs — successive minimum wage hikes and the increase in employer National Insurance contributions (NICs) — that has hurt employers and reduced hiring.
Employment up, unemployment down — but data concerns remain
The employment rate for workers aged 16 to 64 has improved in recent months, ticking up to 75.4%. This represents an all-time high for the last three years. Note that this measure comes from a household survey and covers all types of work, including self-employment, not just payroll jobs.
There is also some notable improvement in the unemployment rate, which declined to 4.7%. These data points come with the usual disclaimer. In recent years, the Office for National Statistics (ONS) has had problems with its household-based Labour Force Survey, which tracks both of these series. Falling response rates have introduced some volatility in the underlying data. In other words, we cannot be confident that every point estimate is accurate. Nevertheless, the unemployment rate has now fallen by 0.5 percentage points from its peak of 5.2% in the winter of last year. That is now a trend that is hard to dismiss.
Hiring remains depressed
The bad news in this employment report is that hiring remains structurally depressed. The number of vacancies in the U.K. has now declined to about 691,000. Outside the COVID-19 pandemic, that is now the lowest number in more than 12 years. While the unemployment rate remains low by historical standards, this is simply a very bad labor market if you are looking for a new role or are trying to enter the labor market. That is why many workers currently feel stuck in their jobs — the labor market doesn’t offer them good outside options — and why youth unemployment has soared. The ONS reports that its vacancy survey indicates it is predominantly smaller businesses that have stopped hiring. They are suffering the most from the surge in employment costs caused by the rise in the minimum wage and higher employer NICs.
Wage growth still positive — for now
Despite the oil price shock earlier this year, real wage growth remains in positive territory. Nominal wages are growing at a rate of about 4%, depending on which measure you use, while inflation currently sits at 3.1%. This is good news for workers and can partly explain why the U.K. economy has been doing OK this summer. Workers’ pay hasn’t been eroded by inflation yet, which has helped support consumption. Nevertheless, we need to caution that the gap between the two will narrow over time. The Bank of England’s latest projections for the Consumer Price Index have it going up to just over 4% by the first quarter of 2027. This implies stagnant or even slightly negative inflation-adjusted wage growth at the beginning of next year. The effects of the oil price shock will thus continue to play out.
What does this mean for recruiters?
With two consecutive months of positive payroll growth, the latest employment report provides some tentative evidence that the U.K. labor market is stabilizing and potentially improving from here on out. Yet some caution is warranted, as we’ve experienced a false dawn before. Almost a year ago, we also saw two months of positive job growth before employment losses accelerated again. Moreover, vacancy numbers continue to deteriorate. If hiring doesn’t start accelerating any time soon, employment numbers will continue to stagnate or worsen. Two major headwinds are potentially holding back the labor market in the U.K. First, the effects of the oil price shock haven’t fully unfolded yet, as inflation will continue to rise until early next year. Second, there is again plenty of speculation about the next Labour Budget, with most expecting tax hikes. Amid all this uncertainty, businesses remain wary of expanding headcount prematurely. For recruiters, all of this means that the economic environment in the U.K. remains challenging, putting a lid on hiring across sectors.
